Ex business partner/s refusing to pay me my shares in the business.

[Harperlee]

Hello everyone,

I hope you can advise me on an issue.

Three years ago I went into business with a husband and wife couple who I had known for a long time and considered friends. The business is a thriving barber's shop and barbering teaching acadamy.

The following is the wording (minus any sensitive data) from the contract that we all agreed to and signed:

'This email outlines the agreement for 20% of the Academy profits commencing 1st Feb 2021.

1. The Academy's turnover will account for the costs prior to paying any shareholders - as requested you can be paid quarterly with a full statement.

2. The costs will include, 50% of the annual rent at the XXX Lane shop, corporation tax deduction 20% or the relevant % for that year, any utilities, marketing costs, and any other agreed costs.

3. In return for 20% we will require payment of £12,000 but you will pay this off as and when we earn as agreed.

4. You will be required to work at all Academy sessions, unless unwell or on an agreed holiday.

5. You will help with finding new barbers for XXXX Barbershops.

6. You will work closely with XXX and XXX to maximise the earning potential.

7. You will be as active on social meadia as possible, promoting the school of barbering.

8. You will attend regular meetings.

9. You will allow XXX Barbershop Ltd to purchase back the 20% of the Academy for the same price paid £12,000 if you no longer wish to be part of the team. However we expect a minimum of commitment of 24 months before we would consider this as an option.

If you email me back to agree but also let me know if you want to add?'

This was sent by the wife of the couple I went into business with.

Three years later I decided to leave and persue working elsewhere.

Before I left it was agreed (verbally) that I had paid around £8,000.00 into the business and that I would be paid this back in full.

Now that I have left the couple have changed their minds and are saying that they will give me 'something' back but only when they sell the business. This was relayed to me over the telephone by the husband of the couple and I was so shocked that I didn't know what to say except that I needed time to consider all this.

The business is doing well and I can see no reason why they would want to sell it or even when they would and this was never part of the original agreement above.

I worked hard and for very long hours with few holidays off to help this couple and myself to build up the teaching academy side of the barber's shop (the shop was already a thriving business and I was employed there but the couple wanted to branch out into teaching).

I now feel that I have been used for my expertise in barbering to help them build the academy and, if they don't pay me back then I have effectively paid them £8K for the priviledge of helping them.

I am now wondering what I can do to retrieve the £8K I have put into the business over the last three years.

Can I take them to court?

If so would it be the Small Claims court?

If it is the Small Claims court can I do this myself?

Any advice would be very welcome as I am still reeling from the telephone call and don't know where to start with all this.

Many thanks.

 

[Newchodge]

Hello everyone,

I hope you can advise me on an issue.

Three years ago I went into business with a husband and wife couple who I had known for a long time and considered friends. The business is a thriving barber's shop and barbering teaching acadamy.

The following is the wording (minus any sensitive data) from the contract that we all agreed to and signed:

'This email outlines the agreement for 20% of the Academy profits commencing 1st Feb 2021.

1. The Academy's turnover will account for the costs prior to paying any shareholders - as requested you can be paid quarterly with a full statement.

2. The costs will include, 50% of the annual rent at the XXX Lane shop, corporation tax deduction 20% or the relevant % for that year, any utilities, marketing costs, and any other agreed costs.

3. In return for 20% we will require payment of £12,000 but you will pay this off as and when we earn as agreed.

4. You will be required to work at all Academy sessions, unless unwell or on an agreed holiday.

5. You will help with finding new barbers for XXXX Barbershops.

6. You will work closely with XXX and XXX to maximise the earning potential.

7. You will be as active on social meadia as possible, promoting the school of barbering.

8. You will attend regular meetings.

9. You will allow XXX Barbershop Ltd to purchase back the 20% of the Academy for the same price paid £12,000 if you no longer wish to be part of the team. However we expect a minimum of commitment of 24 months before we would consider this as an option.

If you email me back to agree but also let me know if you want to add?'

This was sent by the wife of the couple I went into business with.

Three years later I decided to leave and persue working elsewhere.

Before I left it was agreed (verbally) that I had paid around £8,000.00 into the business and that I would be paid this back in full.

Now that I have left the couple have changed their minds and are saying that they will give me 'something' back but only when they sell the business. This was relayed to me over the telephone by the husband of the couple and I was so shocked that I didn't know what to say except that I needed time to consider all this.

The business is doing well and I can see no reason why they would want to sell it or even when they would and this was never part of the original agreement above.

I worked hard and for very long hours with few holidays off to help this couple and myself to build up the teaching academy side of the barber's shop (the shop was already a thriving business and I was employed there but the couple wanted to branch out into teaching).

I now feel that I have been used for my expertise in barbering to help them build the academy and, if they don't pay me back then I have effectively paid them £8K for the priviledge of helping them.

I am now wondering what I can do to retrieve the £8K I have put into the business over the last three years.

Can I take them to court?

If so would it be the Small Claims court?

If it is the Small Claims court can I do this myself?

Any advice would be very welcome as I am still reeling from the telephone call and don't know where to start with all this.

Many thanks.

Did you get legal advice on the document you have quoted, which reads more like a contract of employment that a shareholders agreement.

 

[fisicx]

It is a bit confusing.

Shares are issued by a limited company. The document you quote doesn’t mention any shares.

 

[brucegreig]

Would I have paid (£1k+) for legal advice on a £12k investment? Probably not. I'd just write down in an email what I thought I'd agreed with the others, as the OP has done.

The agreement isn't clear, though, unfortunately. The least clear thing is point 9: "9. You will allow XXX Barbershop Ltd to purchase back the 20% of the Academy for the same price paid £12,000".

Probably, you both meant this to also say something like "and Barbershop Ltd must actually purchase your shares at £12,000". But it doesn't actually say this. So the agreement just says that you must allow them to buy, but doesn't compel them to buy if they don't want to.

It could be that the email doesn't fully reflect your agreement, and you have something else which indicates that the agreement was that they would have to buy you out if you wanted to leave (rather than you just offering them the opportunity to buy you out).

If they aren't buying you out, do you still have a claim on 20% of the profits? That's also unclear, because it says you are "required to work at all Academy sessions" which presumably you are not doing now.

This makes it all very tricky and you would almost certainly need expert legal advice to unravel it, but both sides' legal costs could easily reach £8k if you ended up actually going to trial over it (could be like £20-30k, which obviously would be pointless). Do you have any insurance which might cover legal costs? Lots of household insurance includes legal expenses these days. Or membership of a trade union or similar?

Sorry not to have anything more positive to say ...

 

[Newchodge]

Would I have paid (£1k+) for legal advice on a £12k investment? Probably not. I'd just write down in an email what I thought I'd agreed with the others, as the OP has done.

The agreement isn't clear, though, unfortunately. The least clear thing is point 9: "9. You will allow XXX Barbershop Ltd to purchase back the 20% of the Academy for the same price paid £12,000".

Probably, you both meant this to also say something like "and Barbershop Ltd must actually purchase your shares at £12,000". But it doesn't actually say this. So the agreement just says that you must allow them to buy, but doesn't compel them to buy if they don't want to.

It could be that the email doesn't fully reflect your agreement, and you have something else which indicates that the agreement was that they would have to buy you out if you wanted to leave (rather than you just offering them the opportunity to buy you out).

If they aren't buying you out, do you still have a claim on 20% of the profits? That's also unclear, because it says you are "required to work at all Academy sessions" which presumably you are not doing now.

This makes it all very tricky and you would almost certainly need expert legal advice to unravel it, but both sides' legal costs could easily reach £8k if you ended up actually going to trial over it (could be like £20-30k, which obviously would be pointless). Do you have any insurance which might cover legal costs? Lots of household insurance includes legal expenses these days. Or membership of a trade union or similar?

Sorry not to have anything more positive to say ...

I don't think that email was written by the OP

 

[fisicx]

I don't think that email was written by the OP

And it doesn’t actually say anything about shares.

 

[Harperlee]

Hi everyone - thank you for your replies. Does anyone know if I have a chance at winning in the small claims court? Even if the word 'allow' means the other partners have a choice of paying me back my £8 or not then surely I am still entitled to the payments I have been getting while in this partnership? Many thanks.

 

[Newchodge]

Hi everyone - thank you for your replies. Does anyone know if I have a chance at winning in the small claims court? Even if the word 'allow' means the other partners have a choice of paying me back my £8 or not then surely I am still entitled to the payments I have been getting while in this partnership? Many thanks.

I would say zero chance.

surely I am still entitled to the payments I have been getting while in this partnership? If you have been getting the payments, why would you need to go to court to get them?

 

[fisicx]

Engage a solicitor and they will advise on your chances - which are probably very low.

Is this £8000 part of the £12000 you agreed to pay?

The whole contract is still very confusing.

 

[Newchodge]

Hi everyone - thank you for your replies. Does anyone know if I have a chance at winning in the small claims court? Even if the word 'allow' means the other partners have a choice of paying me back my £8 or not then surely I am still entitled to the payments I have been getting while in this partnership? Many thanks.

Perhaps you could clarify what you think you should 'win'.

 

[pentel]

paying any shareholders

XXX Barbershop Ltd

OP, do you have shares in a limited company or is this some form of partnership?

 

[Eric Feltin]

I have been involved in a few small claims court cases. Here are a few points about the process:

(1) You have to pay to file your claim. Given that you are seeking £8k, you will have to pay £455. Given that your case is not cut and dried, you are unlikely to get that money back even if you win.

(2) One of the first things you will be asked to do is to try to have the dispute mediated. As of 22 May 2024, this is a legal requirement. So, I would recommend going to mediation before you actually file a claim with the courts.

(3) As the claimant, you have to prove your case … even to a mediator. The promise of £8k was verbal. So, you are asking the mediator (or the court) to trust your word.

As an aside, in 2013 in the case of Gestmin v Credit Suisse, Mr Justice Leggatt said that “a judge [should] place little if any reliance at all on witnesses’ recollections of what was said …” This statement was perhaps shocking at the time but has led to changes in the law and court procedures.

My point is that your memory will carry zero weight at court. The only thing that will matter will be what contemporaneous documents say – including emails, notes you took at the time, etc.

So, before you go to mediation: (a) collect together all relevant documents, (b) write a very clear statement of your case that is evidenced solely by documents.

From the information you have provided I don’t think you have a case. The key point is that there is nothing compelling them to buy your shares. Point 9 says that they have the right (but not the obligation) to buy back your 20% for £12k.

The fact that you were willing to accept £8k instead of £12k would suggest that you know you have no way of compelling them to buy your shares.

The offer of £8k was verbal only. Likely you will be unable to evidence that there was an offer at all. And, even if you can evidence an offer, you have no way of evidencing the conditions of that offer (for example, the wife might have said, “I have to ask my husband.”)

Sorry but I don’t think you have a case.

Disclaimer: I am not a solicitor. I have no seen any of the documents. This is not legal advice.

 

[brucegreig]

As the claimant, you have to prove your case … even to a mediator.

You may be thinking of an arbitrator here, not a mediator. An arbitrator is like a private judge whom both parties agree can make a binding decision. A mediator does not make any binding decision, but merely manages a negotiation process to help the two sides to reach an agreement. You don't need to prove your case to a mediator.

One of the first things you will be asked to do is to try to have the dispute mediated. As of 22 May 2024, this is a legal requirement. So, I would recommend going to mediation before you actually file a claim with the courts.

The change made on 22 May was to make participation in the existing voluntary 1-hr telephone mediation service compulsory for Small Claims Track cases. But that service is part of the court system: I think you have to initiate the claim first and you will be then invited to schedule a telephone mediation appointment with one of the Court Service mediators.

FWIW, I'm not sure that I would agree with these two points:

your memory will carry zero weight at court.

The fact that you were willing to accept £8k instead of £12k would suggest that you know you have no way of compelling them to buy your shares.

 

[Eric Feltin]

You may be thinking of an arbitrator here, not a mediator.

The change made on 22 May was to make participation in the existing voluntary 1-hr telephone mediation service compulsory for Small Claims Track cases.

Thanks. I am sure you are right here.

I think my point is that "taking them to court" is the last straw. And, even after you file your claim, you still have to try alternative dispute resolution. So, my recommendation would be to try mediation/ arbitration before you file court papers.

 

[Eric Feltin]

FWIW, I'm not sure that I would agree with these two points:

I have been in a few cases. Every judge I have encountered has been extremely dismissive of anything that is not evidenced. Also, I did quote Mr Justice Leggatt in Gestmin v Credit Suisse. His view has had a strong influence - so much so that Lord Justice Popplewell said (on 16 Nov 2023) that Leggatt J's statement "has been repeated since by many judges" but that "the pendulum may have swung too far in the direction of dismissing memory as a useful and reliable tool in court".

I am not agreeing that memory should carry zero weight but that is the actual experience I have encountered and (according to Lord Justice Popplewell) this is the general mood of courts in recent years.

Yes, you may encounter a judge that does listen to your recollections but then I think the obvious question for them to ask is: "Why were you willing to accept £8k when the email says £12k?" The only logical answer to this question (that I can think of) is: "Because the claimant knew that they had no power to compel a share purchase."

Admit that the share purchase cannot be compelled, and the case is lost.

Again, I am not a solicitor. I was merely pointing out why I would not pursue this case.

 

[Paul Kelly ICHYB]

Spend a few hundred pounds and let a solicitor read the contract and your timetable/notes.

Whatever happens, that will be your best investment in over 3 years!

 

[Paul Kelly ICHYB]

Would I have paid (£1k+) for legal advice on a £12k investment? Probably not

This probably the reaction for most people.

This topic is the result of not doing it!

 

[The Resolver]

You may be thinking of an arbitrator here, not a mediator. An arbitrator is like a private judge whom both parties agree can make a binding decision. A mediator does not make any binding decision, but merely manages a negotiation process to help the two sides to reach an agreement. You don't need to prove your case to a mediator.

Agree Bruce with what you say as to arbitration but an important aspect of traditional mediation is to try to identify the BATNA (Best Alternative To a Negotiated Agreement") for each party. That means what might happen if no resolution is reached, which, in a litigated dispute (you are correct that the Small Claims Mediation Service applies only to cases that have been issued in court) will depend on identifying who might win in court and for which the evidence is critical .Having said that the small claims mediation service (for money disputes not in excess of £10,000) is not true mediation but just a one hour telepone call swopping offers and counter-offers with no time to engage in true mediation. Here,whether mediated or not, they should try and see if blind bidding can help - see how Smartsettle settled a Small Claims case that had failed to settle in court mediation.